Can directors claim statutory payments?
It’s easy to forget that as a director and owner of a small company you have employment rights, including the entitlement to Statutory Sick Pay. But is there really any advantage in claiming this?
Reluctant claimants
As a director involved in the administration and finances of a company you’ll know that if you don’t stick to the rules, government authorities are quick to come down on you. Yet in our experience many directors/shareholders are reticent when it comes to claiming what they’re entitled to from the state, namely Statutory Sick Pay (SSP). The feedback we’ve had is that “As it’s my business, surely I’m not entitled to anything if I’m off ill for a week or two.”
Directors’ earnings count
It doesn’t matter if the earnings you receive are fees for director’s duties or pay for other work you do for the company, both count for SSP purposes. But as a shareholder you may ask what’s the point in claiming it. As it comes out of the company’s money, won’t it reduce the profit and so the amount available to you? Not necessarily.
Substitution
The SSP rules say that you can use it in place of normal pay. So, for example, if you were drawing a basic salary of, say, £2,000 per month but were entitled to SSP of, say, £300, then you can cut your regular pay to £1,700 and just top it up with the SSP. (Note. For tax and NI purposes it’s treated in exactly the same way as salary). But it still just looks like a change for change’s sake; your pay and the cost to the company remain the same. So where’s the incentive?
Government compensation
Over 20 years ago when SSP was introduced companies were entitled to recover most of the cost of the SSP they paid out. This was achieved by knocking it off the amount of PAYE they had to pay to HMRC. The amount that can be reclaimed has reduced over the years but it’s still worth having.
Example. Ed and Louise are directors and the only employees of Acom Ltd. They each take salary of £5,520 a year and dividends of about £25,000. Ed breaks his leg and is unable to work for six weeks. The rules mean that after the first three days Acom can pay him SSP at the weekly rate of £79.15 (see The next step). Over the period he doesn’t work that would amount to £443. In turn, Acom could reclaim the whole of this amount from the government by reducing its PAYE payments. In this case, because of the level of Ed’s and Louise’s salary, Acom doesn’t have any PAYE to pay, so instead it can claim the SSP back by making a written request to HMRC (see The next step).
Trap. Because of a restrictive formula, only those companies with a low wages bill are likely to be able to get SSP back from the government. If the SSP paid out by your company in any PAYE month is more than 13% of its NI payments (employees’ plus employers’) due under the PAYE system, it can claim back the excess.
Example. If a company paid SSP of £250 and its total NI bill for the same month is £1,000, it can reclaim £120 back (£250 - (£1,000 x 13%)).
Tip. Record and pay yourself and fellow directors SSP as you would any other employee. That will boost your chances of reclaiming some of the cost from the government.
For more information on the SSP rules (CD 11.10.04A) and how to reclaim SSP from the government (CD 11.10.04B), visit http://companydirector.indicator.co.uk.
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